The Canadian Mortgage Housing Corporation (CMHC) has tightened it’s mortgage qualifications starting July 1st – higher credit scores, lower debt ratios and no borrowed down payments for insured mortgages are some of the changes. How does this effect you? We’ve outlined the major changes here.
A Quick Overview:
- Minimum credit score of 680 for one of the borrowers (up from 600)
- The Gross Debt Service Ratios will decrease to 35% (from 39%)
- Total Debt Service Ratio will decrease to 42% (from 44%)
- Down payments cannot be loaned or financed
Why are they making changes?
CMHC is managing their risk and trying to avoid mortgages that are more likely to default resulting in them paying out their insurance.
“These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth,” said Evan Siddall, CMHC’s President and CEO, in a release.
These changes are scheduled to take effect July 1st so any home purchased before then falls under the previous qualifications.
Other options are available
CMHC is not the only provider of mortgage insurance. As they are a crown corporation (meaning they are owned by the government) they are the largest mortgage insurance provider for lenders. Any mortgage with less than 20% down must have insurance - this protects the bank or lender if you default (or can't pay) your mortgage loan.
Canada's two other mortgage insurers, Genworth Canada and Canada Guaranty, confirmed earlier today they have no plans to follow CMHC's lead and change their qualifications. This means you can still get your mortgage insured through them with the previous qualifications... for now.
What does this mean for you?
If you're thinking of purchasing a home - now is a great time to get qualified. While Genworth & Canada Guaranty have not changed their underwriting policy to reflect CMHC's, it doesn't mean they won't in the future.
These changes outlined from CMHC may affect your mortgage approval, meaning you would qualify for less AFTER July 1st.
If you're trying to figure out how much you qualify for, or how to apply for a mortgage, connect with either a mortgage broker or your builder - there are plenty of people to help you with the buying process. Don't be afraid to reach out!
For further home buying help, check out our previous post on the best mortgage apps to help you buy your first home!